you are given the option to choose a password encryption scheme. While “DES” is the standard algorithm used on most Unix systems, “MD5”, “Blowfish”, and “SHA1” allow longer passwords than DES, which only uses the first eight characters of the password that is entered. DES is still useful for interoperability with other operating systems.

In particular i don't understand what type of interoperability could be affected by the choice of a different password encryption scheme.

this is needed only when you migrate your passwd file to some older unix which don't have any idea what is blowfish for example. so if you use your passwd file between one or two other netbsd systems there is no problem to set to whatever you like it -md5, blowfish or sha1.

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Verbose mode can also be turned on for SSH2 with the (surprise!) VerboseMode keyword.